April 24, 2019 – Sunmola David & CO

Nigeria Could Generate $13bn In Additional Tax Revenue With Digital ID Programmes –McKinsey

Nigeria is seen generating $13 billion in additional tax revenue if she could digitalise her identification programmes. This is according to a new McKinsey Global Institute report, which claims that high adoption of digital ID with the right principles can help unlock 3 percent economic value equivalent of GDP in advanced economies and as much as 6 percent in emerging economies on average. The report, which offers a framework to understand the potential economic impact of “good” use of digital ID, analyzed nearly 100 ways in which digital ID can be used, with deep dives into seven diverse economies: Nigeria, Ethiopia, Brazil, China, India, the United Kingdom, and the United States. “We estimate that Nigeria could use digital ID to expand the tax base to include informal income and reduce fraud and errors in tax filing to generate more than $13 billion in additional tax revenue. Nigerians could save 1.8 billion hours annually from efficient services that reduce the need for travel to and from government offices and filing of physical paperwork,” said Fiyinfolu Oladiran, a McKinsey partner. Eyitope Kola-Oyeneyin, Nigerian-based Partner at McKinsey equally said the Digital ID potential for Nigeria is significant and that based on MGI estimates, Nigeria could capture economic value equivalent to 5 to 7 percent of GDP by 2030 from greater formalization, fraud reduction, increased tax revenue, and financial inclusion. “Scaling Digital ID in Nigeria has to be a top priority for enabling inclusive growth,” he said. Around the world, governments and businesses are implementing digital identification programmes with mixed results and adoption levels. Yet when carefully designed, “good” use of digital ID programs can help people participate more fully in their economy and society, which can create enormous economic value and inclusive growth, the report said. “We find that three-quarters of the potential economic value of digital ID could accrue to individuals in Nigeria, making it a powerful key to inclusive growth, while the rest flows to private-sector and government institutions,” said Rogerio Mascarenhas, managing partner of McKinsey’s Nigeria office. He added that the largely informal and self-employed workforce skews the overall benefits of digital ID toward individuals, who could receive 74 percent of the total overall value. He started that Nigeria’s unmet financial needs are significant. 60 percent of the adult population, or about 64.5 million individuals, do not have a bank account and therefore may be cut off from access to credit or the ability to deposit income. “The World Bank found that 18 percent of the unbanked population in Nigeria cited a lack of identification documentation as the primary reason for not opening an account. We estimate that increased lending to individuals and businesses resulting from an expanded deposit base could generate up to $21 billion in additional investment by 2030,” says Amuche Okeke-Agba, a McKinsey partner. Source: Independent

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Luxury Vehicle Tax Ill-Conceived– Mahama

Tax news / Tobi Aminu

Presidential candidate of the opposition National Democratic Congress (NDC), John Mahama has said his administration will scrap the luxury vehicle tax if it comes to power; if the Akufo-Addo government fails to do so. Describing the levy as an ill-conceived one, he said its introduction has overburdened the ordinary commercial driver whose vehicle possesses the white number plate. He argued that the amount of revenue raised so far is not even enough for the tax to be sustained. Speaking to some drivers during his road safety tour in Accra, Mr. Mahama urged them to exercise restraint as the NDC will not hesitate to abolish the policy. “Not too long ago, the government introduced the luxury vehicle tax. This tax was not well thought through before it was rolled out. They should have exempted all commercial vehicles. There are commercial vehicles without the yellow plates, but rather white plates yet they carry commercial goods. Once they exceed three litres, they are charged this luxury tax. This has brought untold hardship on some of the drivers especially those who work for the companies and others. ” “Just recently, I heard that government has only been able to raise GHC 25million from the luxury tax if that is the case, then they should abolish it. If they don’t, we the NDC government will abolish it when we come into power,” he added. The government has collected some GH¢21.3 million in taxes from the use of vehicles with engine capacities of 2.9 litres and above between August and December last year, provisional fiscal data on public finances for last year has shown. The amount is GH¢82.7 million or 79.52 per cent below the GH¢104million that was projected to be collected within the period. The projections were contained in the 2018 mid-year budget review. The government expects to rake in at least 300 million cedis from the tax on luxury vehicles by the end of 2019. The tax, which forms part of the new policy measures introduced in the midyear budget review, is to help bridge the gap in revenue for the first half of the year [2018]. The figure was disclosed when Parliament passed the four bills approving the taxes introduced by the government. Source: Afroinsider

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EFCC begins funds recovery from FIRS officials

Tax news / Tobi Aminu

The Economic and Financial Crimes Commission (EFCC) has begun the recovery of funds from some staff of the Federal Inland Revenue Service (FIRS), who have agreed to return illicit Duty Tour Allowances (DTA) paid into their accounts by the management of the FIRS. Daily Trust learnt yesterday from sources familiar with the investigation that EFCC agents are recovering large sums of money from both the junior and middle-level staff involved in the scam. It was learnt the EFCC initially discovered that over N2.1 billion was paid as DTA in the salary accounts of forty staff. A source said, “However, proper scrutiny was carried out, after normal salaries and normal DTA was deducted and what was paid to them was N1,060 billion.” It was said a substantial amount is already being recovered from the forty staff in this batch after their arrest and interrogation. About twenty of them were detained but all are now on administrative bail. A source said the EFCC seized all their passports, after committing them to pay back what they illegally received within a timeframe. It was learnt yesterday that the Director of Finance, Mohammed Auta was detained and grilled over the payments. Daily Trust gathered yesterday that the anti-graft agency may arrest the Director FIRS support services group Peter Hena who approved and authorized the payments and the main beneficiary of the scam. Sources said Hena, who was supposed to have returned to Abuja on 6 April, sent in his resignation letter, has also claimed to be sick and in need of medical attention abroad. As Coordinating Director, he has supervisory oversight over the Human Capital Management and Development, Finance and Accounts, Revenue Accounting, Facility, Security and Safety Management and Procurement Departments. It was learnt he authorized the payments despite being on N2 million approval limit. It was alleged that Hena authorizes several N1.9 million payments to a particular account in one day, which makes up the huge figures received by some staff. It was learnt some of the staff received varying amounts as DTA within the period being investigated from 2017 to date and did not travel. A source said amounts ranging from N50 million, N40 million, N101 million and N55 million were found to have been paid into the accounts of the staff. It was also learnt the that EFCC may look into the award of contracts and adherence to procurement processes in the FIRS. Source: Daily trust

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Tribunal fixes definite hearing in suit of double taxation against FIRS

Tax news, Uncategorized / Tobi Aminu

The Tax Appeal Tribunal sitting in Abuja, on Wednesday, fixed May 14 for definite hearing in a suit filed by a company, “M FIFTEEN” Consultants against the Federal Inland Revenue Service (FIRS). The company also dragged the FIRS, before the Tax Appeal Tribunal sitting in Abuja over alleged double taxation. Also joined in the suit are the Independent Electoral Commission (INEC) and the Nigeria Police. The company, said it was dissatisfied with the FIRS assessments of it’s Tax Liability. The tribunal presided over by Mrs Alice Iriogbe, adjourned after the appellant counsel, Mr Chike Adaka informed the tribunal that his witness took ill and could not be in court. The counsel to FIRS Mr Ade Ogunmola told the tribunal that while the respondent sympathizes with the appellant ‘s witness but objected to what he called ‘sheer display of un seriousness of the appellant Ogunmola, the counsel ought to have notified both the court and the respondent and there was no medical report against that before the tribunal. He further told the tribunal that in view of that he would ask for a cost of N50, 000 which the tribunal rejected saying that it does not award costs for now. NAN reports that the company specifically said that it was dissatisfied with an intent letter by the FIRS imposing a tax liability of N14. 662 million on it without due consideration of all the material and available facts. The company further stated that the N7. 9 million captured as part of the tax liability have already been deducted at source by the FIRS and the police from the contract sum of the appellant. The company argued that it would amount to double taxation if FIRS expected the appellant to pay same again. It therefore sought the order of the tribunal to declare as null and void, the intent letter by FIRS dated April 7, 2014 . The company also sought an order of the tribunal directing INEC and the Police to show evidence of remittances to FIRS of the sums deducted from the payments made by the appellant in respect of contract executed. The appellant also asked the tribunal to direct that, credit should be given to the appellant in respect of the tax deductions made on payments due to it from the INEC and the Police totaling N7. 9million. The Company further sought an order directing FIRS to issue it a tax clearance certificate which was withheld for the 2006 to 2011 year of assessment. The company further stated that the N7. 9 million captured as part of the tax liability have already been deducted at source by the FIRS and the police from the contract sum of the appellant. The company argued that it would amount to double taxation if FIRS expected the appellant to pay same again. It therefore sought the order of the tribunal to declare as null and void, the intent letter by FIRS dated April 7, 2014. The company also sought an order of the tribunal directing INEC and the Police to show evidence of remittances to FIRS of the sums deducted from the payments made by the appellant in respect of contract executed. The appellant also asked the tribunal to direct that, credit should be given to the appellant in respect of the tax deductions made on payments due to it from the INEC and the Police totaling N7. 9 million. The company further sought an order directing FIRS to issue it a tax clearance certificate which was withheld for the 2006 to 2011 year of assessment. Source: Nigeria Observer

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Professionals call for due process, fault ‘piecemeal’ tax reforms

Tax news / Tobi Aminu

The controversies dogging the nation’s tax reforms, now with Value Added Tax (VAT) regime, may not achieve anything positive unless a holistic approach is taken and urgently, tax professionals have said. The top tax administrators, at the sensitization seminar on proposed VAT increase and the non-assented housing fund bill, organized by the Chartered Institute of Taxation of Nigeria (CITN), at its headquarters building in Lagos, said tax is a serious issue and must be seen as such. The President of CITN, Chief Cyril Ede, who was represented by the Vice President, Olajumoke Surplice, admitted that time has come for comprehensive reforms of VAT regime, particularly as it relates to small business and imported items. Noting that such reforms will bring about balance with respect to disposable income of customers and stability of businesses, he also commended the government for refusing assent to National Housing Fund bill. Former Director of Tax Policy at FIRS, Chief Mark Dike, said the current discordant tunes trailing VAT rate are not new but have only shown lack of due process. According to him, the enactment of VAT in 1993 was a struggle and the process of the only recorded hike to 10 per cent and subsequent reversal in a short period was a display of shoddy arrangement. He said that discussions about tax must be inclusive, with professionals and other stakeholders consulted to smoothen the rough edges that must be followed strictly when agreed. “We must get back to the drawing and the same is true of the housing fund bill. The way we are currently going about these issues, we may not make any headway,” he said. Prof. Abiola Sanni, during a panel discussion, described the recent report on planned VAT increase as a moot, as there was no bill to that effect at the National Assembly, which must precede any discussion. For him, there has been inconsistency overtime in both actions and speech by some government officials but warned that any increase in VAT now would be in bad faith. “The best option is to widen the tax net, not increasing the burden now. Granted, there are opportunities in VAT segment, but it is not right at this point,” he said. The panel moderator, Prof Teju Somorin, said her study of over 15 countries, including Ghana, at the point of VAT increment, shows that there is always public outcry, with some of these countries raising their VAT to 30 per cent. But she appealed to government to follow due process and focus mainly on luxury items, while holding a standard rate of five per cent for non-luxury items, as well as broaden the tax base. Another tax administrator, Azeez Olatoye, said he wants a general review of tax processes to identify the challenges against VAT and other taxes, with a view to balancing the interest of all stakeholders. For him, the government must build trust, as it is not presently adding up, citing budget inconsistencies. He said that the country’s debt profile and the huge service bill is discouraging to taxpayers, who already know that the tax proceeds would not end up in development pursuits. He said that downward adjustment of tax rate would encourage more to voluntarily Source: Guardian

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Tax Dispute Resolution In Nigeria: Challenges And Practical Steps

TAX SERVICES / Tobi Aminu

Introduction In August 2018, taxpayers were awakened to sudden freezing of their bank accounts for alleged non-payment of taxes and this marked the beginning of an “account- freezing” operation by the Federal Inland Revenue Service (FIRS). Many taxpayers who contemplated challenging the powers of the tax authority to direct the freezing of their bank accounts were faced with the dilemma of whether to approach the tax authorities to resolve the matter or to go directly to the court for an interim order to reopen their account. Generally, tax disputes put taxpayers in precarious situations as they are faced with a commercial dilemma of making prompt business decisions in the face of uncertain tax positions. Thus, speedy resolution of tax disputes is critical to any business. As the Nigerian tax authorities increase their budgetary target on a yearly basis, they continually intensify their tax collection efforts. This tends to result in frequent disputes between taxpayers and tax authorities. The tax issues arising from this range from disputes on a taxpayer’s actual tax liabilities to whether the tax authorities had followed due process in notifying a taxpayer of alleged liabilities amongst other issues. Thus, it is important that taxpayers are abreast of the dispute resolution process in Nigeria and the options that are available to them. This Newsletter explores tax dispute resolution in Nigeria, its challenges and practical steps that taxpayers can adopt in resolving such tax disputes. Reasons for Tax Disputes Interpretation of Tax Laws – The recurring need for interpretation of tax legislations has become a major cause of dispute in tax administration. In instances where the tax authorities’ interpretation of the tax laws differ from that of the taxpayers, disputes are almost inevitable. For example, the Lagos State Internal Revenue Service (LIRS), in recent times, issued a series of public notices stating their position on some tax issues, relying on the provisions of the tax laws. This resulted in a number of tax disputes as some taxpayers had different views from the reading of the same provisions. One of such notices is the LIRS’ circular on Taxation of Employee Loan issued in 2017. In that circular, the LIRS relying on Section 3(1)(b) of the Personal Income Tax (PIT) Act mandates employers to remit Pay As You Earn (PAYE) Tax on Benefits-In-Kind (BIK) relating to employee loans. According to the LIRS, the BIK is to be calculated as the difference between the interest rate on the loan and an adjusted Monetary Policy Rate and PAYE Tax should be applied thereon. A number of taxpayers have disagreed with the position of the LIRS as the law contains no provisions with respect to determining BIK on employee loans. Consequently, this has resulted in varying disputes with the LIRS. While the tax authorities typically tilt towards interpretations that favour revenue drive, the taxpayers tilt towards interpretations that favour tax efficiency. This conflict in the motive of interpretations could result in disputes between the taxpayers and tax authorities. Inconsistency in Tax Authorities’ Position – Where the tax authorities adopt an inconsistent approach in dealing with tax issues, taxpayers are put at risk and this could result in tax disputes. In the case between Federal Board of Inland Revenue (FBIR) v Halliburton West Africa Limited (2014), the FIRS reneged from its earlier published circular on the tax treatment of recharges by non-resident companies and this resulted in a major tax dispute. Although the Court of Appeal resolved the issue in the favour of the FIRS, stating that the FIRS’ earlier position could not supersede the law, taxpayers still rely largely on the decisions and positions of the tax authorities to make certain business decisions. Where the tax authority is not consistent in its position, there is bound to be dispute. Inconsistency in the provisions of the law – Contradictions in the tax laws have frequently resultedin tax disputes. An example of this is Section 19 of the Companies Income Tax Act (CITA) on excess dividend tax, which has led to a number of tax litigations. This is because the literal interpretation of Section 19 contradicts other provisions of the tax laws by allowing for the taxation of income that has previously been taxed or exempt from tax under the law. For example, Section 19 appears to contradict Section 80(3) of the CITA that restricts further taxation of franked investment income and Section 60 of the Petroleum Profits Tax Act that exempts dividends distributed from petroleum profits from further tax. Inability of Taxpayers to keep records – Although the Companies and Allied Matters Act (CAMA) requires companies to retain their accounting records for a period of six years from the date they were made, many companies do not adhere to this rule. Similarly, our tax laws stipulate varying penalties for failure to keep books of account. Failure to keep proper tax and accounting records could pose difficulties to a taxpayer in defending its tax position with the Relevant Tax Authority (RTA). It could also lead to inability to reconcile a taxpayer’s record with the tax authorities’ and this is a trigger point for tax disputes. Audits/Tax Investigations – There are a number of dispute triggers which may attract the attention of the tax authorities during a tax audit or investigation. These triggers include situations where there is an inconsistency in a taxpayer’s filings or where a taxpayer engages in aggressive tax planning. Other triggers include significant unutilized capital allowance, inconsistency in filing of tax returns, frequency of acquisition and disposal of qualifying capital expenditure, related party arrangements, significant Value Added Tax and Withholding Tax (WHT) receivables, high operating expenses ratio to revenue amongst others. Procedure for Exercise of Statutory Powers – The Nigerian tax laws vest certain powers on the tax authorities which could be exercised when taxpayers fail to fulfill their tax obligations. These include the power to issue “best of judgment” assessments, impose penalties, detrain taxpayers’ properties and so on. However, these powers should not be exercised arbitrarily. Unfortunately, the tax authorities sometimes

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